Condo approval policies should balance prudent underwriting and affordability

Condominiums have long been one of America’s most important sources of affordable homeownership. More than one-third of Americans – 78 million individuals – live in condos and other shared ownership options that use community associations. For first-time buyers, moderate-income households, retirees looking to downsize and families in high-cost markets and metropolitan areas, a condominium often represents the most attainable path to homeownership. That is why federal policymakers should carefully re-evaluate the impact of condominium project approval policy changes that Fannie Mae and Freddie Mac announced in March on mortgage costs, lender origination and speed of home purchase transactions. There were positive changes in March, creating more flexibility for condo insurance policies with respect to deductibles and replacement cost policies. As insurance costs skyrocket, this should be helpful. At the same time, the flexible limited approval loan option was eliminated, and requirements for condo project reserves were increased. While these changes were based on legitimate safety and soundness objectives, they are also making it harder to originate condo loans. In July, the Communit...